Markup & Margin
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Markup vs. Margin: What's the Difference?

This is the #1 financial concept contractors get wrong — and it can cost you thousands.

Example: A $1,000 Job Cost

• 30% Markup → Selling price: $1,300 → Gross profit: $300 → Actual margin: 23.1%
• 30% Margin → Selling price: $1,429 → Gross profit: $429 → Actual markup: 42.9%

See the difference? If you want a 30% profit margin but apply 30% markup, you're short by $129 on every $1,000 of cost. Over a year doing $200K in jobs, that's $25,800 in lost profit.

The Formulas

• Markup: (Selling Price - Cost) ÷ Cost × 100
• Margin: (Selling Price - Cost) ÷ Selling Price × 100
• Cost to Price (with markup): Cost × (1 + Markup%/100)
• Cost to Price (with margin): Cost ÷ (1 - Margin%/100)

What Markup Should Contractors Use?

Industry benchmarks by trade:

• Residential electrical: 25-50% markup (target 20-35% margin)
• Residential plumbing: 30-50% markup (target 25-35% margin)
• HVAC (install): 30-45% markup (target 25-30% margin)
• HVAC (service): 50-100% markup (target 35-50% margin)
• General contracting: 15-25% markup (target 15-20% margin)
• Specialty trades: 35-60% markup (depends on demand)

Service calls typically have higher margins than installation jobs because the labor-to-material ratio is higher and there's more urgency pricing.

How to Set YOUR Markup

1. Calculate your annual overhead (vehicle, insurance, tools, office, unbillable time)
2. Divide overhead by expected annual revenue to get your overhead rate
3. Add your desired net profit percentage
4. That sum is your minimum markup

Example: $60K overhead ÷ $200K expected revenue = 30% overhead rate + 15% desired profit = 45% minimum markup needed.